Drug reform: Legislation would disincentivize pharmacy benefit managers raising prices

The Delinking Revenue from Unfair Gouging (DRUG) Act would disincentivize drug manufacturers and pharmacy benefit managers (PBMs) from raising drug prices for patients.

U.S. Rep. Abigail Spanberger of Virginia helped yesterday to introduce the bipartisan bill to help tackle the prescription drug affordability crisis and lower drug costs for Virginians.

Pharmacy benefit managers (PBMs) are the middlemen between pharmaceutical manufacturers, health insurers and pharmacies that negotiate and keep rebates from manufacturers in exchange for preferable formulary placement — the lists of medications covered by a given health plan. PBMs’ profits are tied to rebates, so they have an incentive to select a higher priced drug, which can cause drug manufacturers to artificially inflate a drug’s list price to offer PBMs higher rebates. Patients often end up paying more for prescription drugs even when a lower-cost option might exist but is not covered by their insurance.

Experts have long argued that delinking PBMs’ profits from drug prices would eliminate the incentive for PBMs to recommend higher-priced drugs, as well as lower costs for patients.

The legislation would specifically prohibit PBMs from linking rebates paid by manufacturers to the list price of the drug and instead implement a flat service fee paid to PBMs. The bill would also ban spread pricing — the practice of PBMs billing health plan sponsors less than the reimbursements paid to pharmacies and pocketing the difference, and ban PBMs from steering patients to PBM-owned pharmacies and reimbursing out-of-network pharmacies at a different rate than in-network pharmacies.

“While Virginians and Americans across the country are spending more and more of their money on lifesaving medication, PBMs are playing a behind-the-scenes role in driving up prescription drug costs,” Spanberger said. “These third-party middlemen should not receive a cash reward for steering patients toward overpriced medications. This bipartisan bill would help lower drug costs by reforming the pharmaceutical industry’s murky rebate system and removing the incentive for PBMs to favor expensive drugs over drugs Americans can actually afford.”

The legislation is led in the U.S. Senate by Sens. Tim Kaine of Virginia, Roger Marshall of Kansas, Jon Tester of Montana and Mike Braun of Indiana.

In 2019, the U.S. House passed Spanberger’s bipartisan Public Disclosure of Drug Discounts Act on a vote of 403-0 to help tackle the prescription drug affordability crisis and bring greater transparency to prescription drug negotiations. She also introduced the bipartisan Improving Transparency to Lower Drug Costs Act in June 2021 to hold PBMs accountable by requiring PBMs to report their aggregate rebates, discounts, and other price concessions for prescription drugs to a public website.

Earlier this year, Spanberger helped introduce the bipartisan PBM Sunshine and Accountability Act to establish new, public reporting requirements for PBMs, hold these intermediaries accountable, help tackle the prescription drug affordability crisis, and lower drug costs.

In April 2023, she reintroduced the bipartisan Preserving Rules Ordered for the Entities Covered Through (PROTECT) 340B Act to prohibit insurers and PBMs from discriminating against providers or contract pharmacies that dispense discounted 340B drugs. Spanberger originally introduced the bipartisan bill in July 2021.